In many regards the Fed meeting was a nonevent. The Committee raised their assessment of the labor market and the economy, keeping the central bank on track to increase interest rates this year for the first time in almost a decade.
The Fed issued new economic forecasts that implied two quarter point rate rise this year but a shallower pace of increases in the 2016. The Committee maintained their projection that the benchmark rate would rise to 0.625% in 2015 while dropping is 2016 forecast to 1.625% from March’s forecast of 1.875%.
Regarding inflation, officials expect inflation “to rise generally toward 2% over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.”
Commenting about when the first rate hike will occur, the Committee stated “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”
In other words it is all about jobs and generating demand pull inflation that could perhaps gravitate into “acceptable” cost push inflation (wage inflation).
How will the remarks be interpreted over the medium term? Today marked the first time since 2008 that policy makers entered an FOMC session without having clearly signaled beforehand that a rate move was unlikely. Moreover the FOMC made it clear rate decisions will be made month to month and be “data dependent.”
Wow! Talk about the potential rise of volatility given the multitude of interpretations of most data points, including the all-inclusive and pivotal jobs report and weekly unemployment claims.
Speaking of which, weekly claims are released today at 8:30 so is the CPI.
How will this data be interpreted?
Last night the foreign markets were down. London was down 0.39%, Paris down 0.87% and Frankfurt down 0.61%. Japan was down 1.13% and Hang Sang down 0.22%.
The Dow should open nominally higher on the lower revision of the targeted rate for overnight funds. European stocks were lower on Greek concerns. The 10-year is up 9/32 to yield 2.28%.